Today at TILE we talked about how financial terms can unexpectedly make their way into our everyday lives. Have you seen LIFO in the newspaper lately? FIFO? What does it all mean?
Accounting is the language of numbers and financial terms. While the official language in the U.S. is English, the official language of a company’s finances is accounting. But sometimes these two languages get mixed together, kind of like “spanglish.” If you know where to look, you can often find accounting terms sneaking into your everyday speech… and impacting your life in ways you wouldn’t expect. Recently there has been a lot of discussion about LIFO, which stands for “last in, first out.” Have you heard of it? It is an accounting concept used to manage expenses – but recently it’s been applied to public school teachers as well.
Imagine a big bowl of lollipops… they’re all the same, but the candy store purchased them at different times and at different prices. If you take one out, how does the merchant know the cost (especially if he bought them over time for a range of prices) of the lollipop? The objective of accounting is to measure your financial progress (for example, it was sold for $1.00, cost $0.20 to make, and generated $0.80 in profit), but can you really track every single piece of candy? Of course not – that is where accounting comes in, as it gives you different rules of the road to follow. For example, LIFO refers to the idea of selling your inventory in the reverse order you bought it. Literally, the last lollipop you brought in is the first one you sell.
How does this apply to real life? There is currently a lot of attention being paid to teacher layoffs. Cities and states don’t have enough money to keep paying teachers, and they need to cut expenses. In deciding to lay off (a.k.a. fire) teachers, how do they decide who goes first? In New York, the teachers’ union has a rule that is essentially LIFO – the last teachers hired are the first to go. Unfortunately, this means the best lollipops might not be the ones left when you go to feed your sweet tooth (unlike some items you might find on a financial statement, teachers aren’t all the same). Wouldn’t you rather choose your own candy rather than be forced to take the one at the bottom of the jar? If the city applies the LIFO concept in firing, the newest teachers will lose their jobs first. In some cases, this might mean that the teachers with the most up-to-date training, fresh ideas, and new degrees will be the first to go. Not to mention that these newest (and usually youngest) teachers are the least expensive to the city in terms of salary.
So what does this mean for you? Well, like any set of rules, this one can be changed. In accounting, you can choose to use FIFO (first in, first out) or average cost (lots of calculations). Changing policies shouldn’t be taken lightly, but when something isn’t working (or you are always stuck with the worst candy) it may mean it is a good idea to think about your strategy. If you think teachers should be judged on merit versus seniority, say something about it! After all, what if it was you that didn’t have the best teacher at the front of the class?
- Amy